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related income as “other income” on the front of petitioners’
Forms 1040, U.S. Individual Income Tax Return, rather than as
business income on the Schedules C, Profit or Loss From Business.
Respondent accordingly disallowed the related Schedule C expenses
which were in excess of the Amway income, and recharacterized the
remaining related expenses as miscellaneous itemized deductions
subject to the 2-percent floor under section 67(a).3 Petitioners
argue that the Amway activity was engaged in for profit and that
the related expenses should therefore be allowed in full as
deductions.
In order for expenses incurred in connection with an
activity to be deductible, the expenses generally must have been
ordinary and necessary either in carrying on a trade or business
or in an activity engaged in to produce income. Secs. 162(a),
212; Elliott v. Commissioner, 90 T.C. 960, 969 (1988), affd. 899
F.2d 18 (9th Cir. 1990). In order for the expenses to be
deductible in either situation, taxpayers must have conducted the
activity with the intent to make a profit. Elliott v.
Commissioner, supra at 970. Alternatively, taxpayers may claim a
deduction under section 183(b)(2) to the extent of the income
derived from the activity, if they otherwise meet the
3Respondent also determined that, if petitioners were found
to have had a profit objective, a portion of the claimed Amway-
related expenses was nevertheless not deductible under sec. 162.
Based on our holding, we need not address this alternative
position.
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